Target's new CIO Mike McNamara said that while some work would be insourced, the Minneapolis-based retailer would still continue to work with technology vendors such as TCSAnirban Sen | ET Bureau | February 15, 2016, 09:02 IST

American Retail giant Target, a marquee client of large Indian IT services providers, has joined the likes of AstraZeneca and Lowe's in deciding to insource and bring back some back-office software projects to their own centres.

In an exclusive interview with ET during the Nasscom leadership summit in Mumbai, Target's new CIO Mike McNamara said that while some work would be insourced, the Minneapolis-based retailer would still continue to work with technology vendors such as TCS.

“Absolutely. Unequivocally yes,“ said McNamara, when asked about whether the company plans to insource any software projects. “However, we'll still do a huge amount of work with third-party service providers both here in India and elsewhere.“

McNamara said that Target, which currently spends well over $1 billion on technology annually and has multi-million-dollar outsourcing contracts with TCS and Infosys, wanted to build up its own engineering capabilities internally and not rely solely on third party vendors.

“You have to have your own software engineering capability, you have to have your own data science capability in-house because that's how you're going to create a huge amount of value going forward. And that's why I want to do it - I want to build up our own engineering,“ said McNamara, who was previously CIO at Tesco.

“I don't see the outsourcing model being fundamentally challenged. But I think it'll change in nature slightly. And those things that can make a difference to our business, we will develop ourselves inhouse,“ he added.

Executives at India's largest software firms would be nervously tracking the outsourcing agenda of large customers such as Target's McNamara, in a year when the $160 billion Indian IT industry is expected to record its slowest growth since the recession of 2008-09.

To be sure, their top customers such as Citigroups, General Electric and Bank of America are still spending hundreds of millions of dollars on outsourcing to India. And that demand will not evaporate overnight, experts say. But Target is not the only customer that is rethinking its outsourcing strategy.

Rival retailers such as Tesco, in fact, plan to stay away from outsourcing majorly to third-party service providers.

“Tesco hasn't believed in outsourcing in the classical sense of hiring third-party contractors. We do that, but on a much smaller scale than other companies. We want the people that work on our problems to feel ownership on those problems, ownership in the company -our presence in Bengaluru is an example of that. They are employees in Tesco, they are not contractors, not outsourced,“ said Tesco Chief Technology Officer Edmond Mesrobian in an interview on Wednesday.

Others such as Lowe's, which spends about $1 billion on technology annually, have candidly spoken about how they want to insource heavily, given the relative lack of success with the outsourcing models -a worrying development for top Indian software firms.

“It's a much stronger model to build that core capability as a Lowe's employee than an outsourced one,“ said Lowe's Chief Information Officer Paul Ramsay in an interview in January.